The Clearstream international securities depository and the National Bank of Ukraine (NBU) signed on March 13 an agreement for correspondent relations and the further opening of securities accounts at the NBU’s depository. “Establishing a link with Clearstream simplifies the access of foreign investors to the Ukrainian securities market, namely, domestic government bonds,” the NBU commented about the deal in a press release. The link will reduce transaction costs and time for non-residents to trade Ukrainian local bonds, which “will increase the attractiveness and liquidity of the Ukrainian government securities market,” the NBU wrote. Ukraine’s Finance Minister Oksana Markarova called the event “a long-awaited step towards opening the Ukrainian local bond market to foreign investors.”

Alexander Paraschiy: Clearsteam entering Ukraine can become a breakthrough for UAH-denominated local government bonds, as access to them for non-residents will become simplified significantly. Currently, the purchase of such bonds directly is very time-consuming (opening accounts takes a couple of months), while indirect purchases – e.g. via Citibank – are also inefficient as the derivatives offer a 2-4pp lower interest rate than original government bonds. The NBU was expecting that the radically simplified access of non-residents to the local government bond market will enable the government to significantly increase demand for its bonds. In neighboring countries, non-residents hold about one-fourth of local government bonds, while their share in Ukraine is only 3% currently.

These days, UAH-denominated government bonds maturing in less than a year trade at an 18.5%-19.5% rate, which – amid the relative stability of the Ukrainian currency (the hryvnia has strengthened vs. the U.S. dollar by 3.7% YTD) – may offer a solid return for risk-seeking non-residents. And the recently liberalized foreign currency regulation in Ukraine reduces exit risks for such investments.

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